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Government Subsidy on Electric Cars

Government Subsidy on Electric Cars
January 20, 2024
19 min

The government understands that electric cars can aid in building a greener future and lessen our effect on climate change. Several nations, including our own, are providing subsidies to encourage folks to shift to electric vehicles. Subsidy from the government means financial help given to the automakers and buyers of electric vehicles. The goal is to make electric cars more reasonable for regular people by reducing upfront costs. These government subsidies have played a key role in expanding the adoption of electric cars.

This financial aid from the administration aims to promote greener alternatives to vehicles that run on fossil fuels. Several carmakers are using this subsidy to drop the prices of their electric cars and make them competitive with gasoline cars. The subsidy assists automakers with investing more in electric vehicle technologies and helping more people opt for these emission-free cars. Let us look at what the government subsidy on electric cars may signify for regular car buyers.

A Brief History - When Did Electric Car Subsidy Begin?

I. 2005 Energy Policy Act

The federal government first took action to help accelerate the early adoption of electric cars in 2005. The Energy Policy Act introduced the original EV tax credit to incentivize consumers to purchase these new fuel-efficient vehicles.

The 2005 policy offered a tax credit of up to $3,400 for hybrid electric vehicles. However, the initial subsidy program did not include fully battery-powered electric cars. Still, it represented the government’s first step toward supporting the nascent electric car industry through financial incentives.

II. 2009 American Recovery and Reinvestment Act

In 2009, the new Biden administration expanded the scope and magnitude of electric car subsidy. The Recovery Act increased the maximum tax credit to $7,500 and allowed plug-in electric cars to qualify for the first time.

This major stimulus package aimed to boost production and consumer demand for EVs during the economic downturn.

III. Changes since 2009

Over the past decade, Congress has periodically adjusted the rules around electric vehicle subsidy. Manufacturers now face limits, with the tax credit phasing out over time as a company delivers its 200,001st EV.

The exact amount of the credit today depends on the vehicle and producer. These evolving guidelines aim to maintain incentive support while avoiding excess profits for high-volume automakers.

IV. Current State of Credit

At present, most mainstream battery electric cars and plug-in hybrids qualify for a partial subsidy between $3,750 and $7,500. As sales numbers rise for popular models like the Tesla Model 3, their individual credits gradually decrease.

Continued debate focuses on reforms to the long-running tax incentive program and how the government can best facilitate a sustainable transition to electric mobility over the coming decade.

What’s Government Subsidy On Electric Cars As of 2024?

Per the IRC Section 30D, you can get up to $7,500 credit if you purchase a new plug-in or fuel-cell electric vehicle in 2023 and beyond.

Qualify for Credit if you purchase an electric vehicle

Source: IRS

Although they clearly state that there’s credit, they added ‘up to’ before $7,500. This means certain conditions and criteria are in place, and meeting some or all of them will decide how much credit you get. The amount you get is mainly based on your income tax and the specifications of your electric vehicle.

Eligibility Criteria For EV Tax Credit:

IRS has a FAQ section that clearly states the tax credit eligibility criteria for electric vehicle owners, both New and Used. The key points are given below:

Eligibility Criteria For EV Tax Credit

New Electric Vehicles:

The following criteria apply for qualifying for the $7,500 tax credit on buying a new electric car:

  • The vehicle must be bought new for personal use between 2023 and 2032 for the subsidy to apply.
  • The vehicle’s maximum price before any state or federal subsidy cannot exceed $80,000 for SUVs, vans, or trucks. Cars have a lower limit of $55,000.
  • It needs primarily to be used in the United States.
  • Your income can be no more than $300,000 if filing jointly, $225,000 if a head of household, or $150,000 for other filers, based on the lower of purchase or prior year.
  • The maximum tax credit is $7,500, regardless of the vehicle’s price.
  • Any unused portion of the credit cannot be refunded but can lower your tax bill down to $0 owed.

Used Electric Vehicles:

Buyers may claim a 30% tax credit up to $4,000 on obtaining a pre-owned EV if certain prerequisites are satisfied:

  • The credit can only be taken once every 3 years per individual.
  • The vehicle must have at least a 7kWh battery and weigh under 14,000 lbs.
  • It can be no more than 2 years old from when it was first placed in service.
  • The purchase price must not exceed $25,000 to qualify for the used EV subsidy.
  • Only the first retail owner after the initial user can claim the credit.

Adhering to the eligibility guidelines ensures buyers can benefit fully from these substantial government subsidies promoting greater electric car adoption. The incentives aim to offset higher purchase prices through tax credits worth thousands in savings.

How Much Credit Can You Get For Your Electric Vehicle?

Vehicles From the First Quarter of 2023:

  • For vehicles put under service from January 1 to April 17, 2023, the base credit is $2,500 plus $417 for every kilowatt hour (Kwh) of battery capacity over 5 kWh up to $7,500 total
    • This means the minimum credit will be $3,751 for a vehicle with a 7 kWh battery capacity minimum

Vehicles After First Quarter of 2023:

  • For vehicles placed in service from April 18, 2023, onwards, in addition to the above criteria, the vehicle must meet new critical mineral and battery component requirements
    • If the vehicle only meets the critical mineral requirement, the credit is $3,750
    • If it only meets the battery component requirement, the credit is also $3,750
    • To receive the full $7,500 credit, the vehicle needs to meet both the critical mineral and battery component standards
  • Vehicles not meeting either new requirement will be ineligible for any tax credit amount

How is the Federal EV Tax Credit Calculated?

The details are complex but important to understand.

Battery Requirement Criteria

The battery portion of the tax credit depends on the percentage of the EV’s battery assembled or manufactured within North America. This percentage threshold increases over the years, as seen in the table below:

Vehicle Delivery YearRequired Battery Manufacturing/Assembly Percentage in North America
2022-202340%
202450%
202560%
202670%
2027 onwards100%

Critical Minerals Requirement Criteria

The critical-mineral part of the tax credit mandates that a specific percentage of critical minerals in the EV’s battery must be extracted or processed in the U.S. or countries that have a free trade agreement with America. These include minerals such as lithium, cobalt, nickel, and manganese. The required percentages are:

  • 2023: 40%
  • 2024: 50%
  • 2025: 60%

Additionally, from 2024 onwards, EVs cannot source any critical battery minerals from foreign countries of concern like China and Russia. This aims to reduce U.S. dependence on other nations for crucial battery materials.

Calculation of Partial vs Full Tax Credit

The total available federal subsidy through the EV tax credit is $7,500. This amount is divided equally between satisfying the battery and critical minerals requirements, each worth $3,750 towards the total credit.

If an electric vehicle meets both the battery and minerals criteria percentages for its year of purchase, it qualifies for the complete $7,500 tax credit. However, satisfying only one of the two requirements makes the buyer eligible for a partial tax credit of $3,750.

Example Calculations

For an EV delivered in 2023:

  • It meets the 40% battery and 40% minerals standards and qualifies for full $7,500 credit
  • It meets only the 40% battery standard and qualifies for a $3,750 partial credit

For an EV delivered in 2025:

  • It meets the 60% battery and 60% minerals standards and qualifies for full $7,500 credit
  • It meets only the 60% minerals standard and qualifies for a $3,750 partial credit

The federal EV tax credit provides a substantial subsidy for electric cars. However, the criteria to qualify for the full or partial amounts become increasingly demanding each year to incentivize domestic sourcing of battery materials and manufacturing.

YearBattery Requirement (%)Critical Minerals Requirement (%)
20235040
20246050
20256060
20267070
20278080
20289080
2029-203210080

Note: The critical minerals requirement also includes restrictions on sourcing battery parts from specific foreign countries, such as China, starting in 2024 and excludes critical minerals from foreign countries of concern entirely, starting in 2025.

Types of Vehicles Generally Qualify for EV Tax Credit:

This section outlines the various vehicle categories that may be eligible for electric car purchase subsidy.

Battery and Weight Requirements:

To qualify for the EV tax credit, all vehicles must meet minimum battery and size standards:

  • Vehicles need to have an electric battery of at least 7 kWh in capacity.
  • The vehicle’s gross weight cannot exceed 14,000 lbs.

Assembly Location Standards:

As of April 2023, to receive the subsidy, almost all EVs must:

  • Be substantially assembled in North America.
  • Meet content standards for critical minerals and battery components.

Fuel Cell Vehicle Exception:

Unlike other EV types, fuel cell automobiles are exempt from one rule:

  • They do not necessarily have to be manufactured by an IRS-qualified automaker.

Meeting these criteria allows numerous zero-emission models like passenger cars, trucks, vans and SUVs to be eligible for the valuable tax credit offered through the government, providing both individual buyers and the domestic EV industry with much needed subsidy worth thousands.

Which Already Released Electric Vehhicles Are Eligible For 2024 Tax Credit?

Car Make and ModelCar YearTax Credit AmountMSRP Limit
BMW X5 xDrive50e2024$3,750$80,000
Cadillac Lyriq2023-2024$7,500$80,000
Chevrolet Bolt2022-2023$7,500$55,000
Chevrolet Bolt EUV2022-2023$7,500$55,000
Chevrolet Blazer EV2024$7,500$80,000
Chevrolet Equinox2024$7,500$80,000
Chevrolet Silverado EV2024$7,500$80,000
Chrysler Pacifica PHEV2022-2024$7,500$80,000
Ford F-150 Lightning2022-2024$7,500$80,000
Lincoln Aviator Grand Touring PHEV2022-2023$7,500$80,000
Tesla Model 3 Standard, Long Range, AWD, Performance2023-2024$7,500$55,000
Tesla Model X Long Range2023-2024$7,500$80,000
Tesla Model Y AWD, Long-Wheel, Performance, RWD2023-2024$7,500$55,000
Volkswagen ID.4 AWD Pro, AWD Pro S Plus2023-2024$7,500$80,000

Vehicles That Will Qualify For Partial Taax Credit ($3,750):

Car Make and ModelCar YearTax Credit AmountMSRP Limit
Jeep Grand Cherokee PHEV 4xe2022-2024$3,750$80,000
Jeep Wrangler PHEV 4xe2022-2024$3,750$80,000
Lincoln Corsair Grand Touring2022-2024$3,750$80,000
Rivian R1S Dual Large2023-2024$3,750$80,000
Rivian R1T Dual Large2023-2024$3,750$80,000
Rivian R1S Quad Large2023-2024$3,750$80,000
Rivian R1T Quad Large2023-2024$3,750$80,000
Rivian R1T Dual Max2023-2024$3,750$80,000
Ford Escape Plug-In Hybrid (Partial)2022-2024$3,750$80,000
Ford E-Transit2022-2023$3,750$80,000
Ford Mustang Mach-E2022-2023$3,750$80,000
Jeep Wrangler 4xe PHEV2022-2024$3,750$80,000
Jeep Grand Cherokee 4xe PHEV2022-2024$3,750$80,000
Lincoln Corsair Grand Touring PHEV2022-2023$3,750$80,000

Which Vehicles Are Going to Lose Tax Credit in 2024?

Car Make and ModelEligibility Status in 2024
Tesla Model 3 Rear Wheel DriveNo longer qualifies for $7,500 tax credit
Tesla Model 3 Long RangeNo longer qualifies for $7,500 tax credit
Nissan LeafEligibility status undetermined (working with suppliers)
Cadillac LyriqTemporarily loses eligibility; expected to regain in early 2024 after changes in parts sourcing.
Chevrolet Blazer EVTemporarily loses eligibility; expected to regain in early 2024 after changes in parts sourcing.
Chevrolet Equinox EVExpected to be eligible in early 2024
Chevrolet Silverado EVExpected to be eligible in early 2024
GMC Sierra EVExpected to be eligible in early 2024
Ford Mustang Mach-ENo longer qualifies for tax credit
Ford E-Transit vanNo longer qualifies for tax credit
Lincoln Aviator Grand Touring PHEVNo longer qualifies for tax credit

Why is the Government Subsidizing Electric Vehicles?

Environmental Benefits

Electric vehicles (EVs) contribute to reducing carbon dioxide (CO2) emissions, assisting efforts to address climate change. Transportation accounts for approximately 29% of CO2 emissions in the United States, so transitioning to EVs from gasoline-powered vehicles meaningfully decreases emissions from this sector. The subsidy helps expedite this environmentally-friendly transition to electric powertrains.

Climate Change Mitigation

Programs like California’s Zero Emission Vehicle (ZEV) Sales Requirement aim to increase the percentage of electric models sold by automakers to 35% in 2026, rising to 68% in 2030 and reaching 100% for 2035 models. This mandate encourages the manufacturing of more EVs, supporting efforts to mitigate climate change through the electrification of transportation.

Economic Advantages

EVs provide long-term cost savings since operating electric vehicles is more affordable than gasoline cars due to lower fuel and maintenance expenses. Research shows the economic payoffs of California’s ZEV program outweigh the costs by around $383 billion, generating substantial savings on gasoline. Government subsidy offset higher upfront EV prices, making them economically practical choices for consumers.

Energy Independence

Promoting widespread EV adoption may help decrease reliance on imported oil from other nations, strengthening the country’s energy security. Domestic electricity production from diverse sources reduces vulnerability to disruptions in global oil supply and price fluctuations.

Consumer Incentives

Financial incentives like tax credits eased affordability concerns by lowering the sticker prices of EVs. The Inflation Reduction Act further supports consumer purchasing power through extended subsidy. Such subsidy incentivizes individual choices to buy electric cars and aids mass adoption.

Job Creation and Economic Growth

Government support for EVs stimulates investment and manufacturing in this emerging industry. A growing EV market means more career opportunities in automotive design, technology development, materials sourcing, and other occupations across supply chains. This increases jobs while also stimulating broader economic activity and development.

Technological Innovation

subsidy encourages automakers to dedicate more resources to researching, designing, and commercializing advanced EV technologies. Partnerships with national laboratories and universities help innovators overcome barriers. Continued financial backing fosters innovative solutions in batteries, power electronics, and other systems critical to the widespread deployment of electric cars.

Reduced Dependence on Gasoline

Transitioning the passenger vehicle fleet away from gasoline supports limiting environmental effects and conserving non-renewable resources. EVs eliminate tailpipe emissions and lessen reliance on gas stations. By incentivizing choices for electric options, subsidy expedites this shift away from fossil fuel consumption.

National Security

Promoting domestic production of EVs and a self-sufficient EV industry enhances energy security and national security. A diverse mix of secure domestic energy sources, like electricity, reduces vulnerabilities from threats to global oil supply chains and geopolitical instability in fuel-exporting nations.

Addressing Concerns about Foreign Manufacturing

Newer subsidy programs focus on inland EV production and sourcing of battery raw materials. For example, provisions within the Inflation Reduction Act require final assembly or battery pack manufacturing to occur in North America to qualify for incentives. This addresses worries about over-reliance on other countries for EV component manufacturing.

What is the Income Limit for the $7500 EV Tax Credit?

Certain Modified Adjusted Gross Income thresholds should not exceed for the owners of new EVs and pre-owned (used) electric vehicles to be eligible for the tax credit. Let’s see what the IRS says about this:

New Electric Vehicles:

Filing StatusModified AGI Threshold
Married filing jointly$300,000
Married filing separately$150,000
Filing as a qualifying surviving spouse, Qualifying widow(er)$300,000
Head of household$225,000
All other taxpayers$150,000

Used Electric Vehicles:

Filing StatusModified AGI Threshold
Married filing jointly or surviving spouse$150,000
Head of household$112,500
All other filers$75,000

How Do I Claim a $7500 EV Tax Credit? - How to Qualify?

You will have to file Form 8936 for Qualified Plug-In Electric Drive Motor Vehicles for either new or preowned EVs if you meet the criteria discussed above. Here are some information you need to provide:

  • Dealer/seller name and taxpayer identification number
  • Buyer’s name and taxpayer identification number
  • Max credit allowable for new vehicles under IRC 30D and for previously owned vehicles under IRC 25E
  • VIN of your vehicle, unless not assigned yet
  • Battery kWh capacity
  • Sale date
  • Price of sale
  • Verification that the buyer of this EV is the original user if the vehicle is new

Parting Words

Government subsidy for electric vehicles aims to make owning an EV more affordable for average citizens. Subsidy can cut a sizable portion of the upfront sticker price of an electric car. This assistance from the state helps spread the adoption of these environmentally friendly modes of transport. As more people switch to EVs, automobile manufacturers will gain more customers and confidence to invest in further developing this technology.

With a lower purchase price, thanks to the subsidy, you don’t need to worry as much about an EV’s higher initial investment than a gas-powered car. The savings can be put to other important uses or enjoyed. Additionally, once an electric car is yours, fueling it at home is much cheaper than filling a gasoline tank. Over the ownership period, the subsidy upfront and lack of gasoline expenses mean you save significantly.

Besides the direct monetary benefits, subsidy also helps reduce range anxiety for potential EV buyers. More drivers mean more demand, which means auto companies feel pressed to implement longer driving ranges before recharging is needed. The subsidy incentivizes this market force shift towards sustainable cars. With improving technologies, you can be confident that your electric car will take you wherever you need to go, thanks to evolving batteries and infrastructure.

Besides saving money on EVs through subsidy, you can save time and hassle of driving it from the dealer/manufacturer to your home. Professional auto transport services like Easy Auto Ship can conveniently and safely transport the EV from the dealer/manufacturer to your home quickly and at affordable prices. Easy Auto Ship will coordinate with the seller for pickup so you get a hands-off transport experience without worry. Moving the electric vehicle yourself can be stressful, while a transport company ensures your new purchase reaches you without fuss.

Frequently Asked Questions

Do you get a tax credit for buying a hybrid car?

The federal government doesn’t offer a tax credit for buying regular hybrid vehicles. However, Plug-In Hybrid cars do qualify for a tax credit subsidy of up to $7,500, depending on the size of the vehicle’s battery.

So, you can receive thousands of dollars in government subsidy when purchasing a hybrid vehicle.

What is the income limit for the Tesla rebate?

There is an income limitation on who is eligible for the full $7500 federal tax credit when purchasing a Tesla electric vehicle.

For the tax year of 2023 or after, the credit will be for single tax filers with an AGI or modified adjusted gross income over $150,000 and $300,000 for joint filers. If your Tesla meets other criteria, you can get up to $7,500 in tax credit subsidy.

Do I get money back from the EV tax credit?

The federal EV tax credit subsidy works as a dollar-for-dollar reduction in owed income taxes by the person claiming the credit. So buyers will not directly receive cash back but will see the credit’s value reduce their tax liability when filing.

For example, if someone owed $8,000 in federal income tax and qualified for the full $7,500 EV tax credit subsidy, their tax liability would be reduced to only $500. This effectively lowers the after-tax price of the electric vehicle.

Unused portions of the credit can also be carried forward to offset future years’ tax bills for up to 10 years until 2032.

Will EV prices go down in 2024?

The current expiration date for the $7500 federal EV tax credit is set at the end of 2023. At that point, automakers who have already sold 200,000 eligible electric vehicles will no longer be able to offer the credit to buyers of their EVs.

Established brands like GM and Tesla will likely meet this threshold by early 2023. Without the continuing tax incentive, it’s difficult to predict whether EV prices will decrease in 2024.

Much will depend on how battery technology costs trend as well as broader economic factors. There is a possibility prices go down slightly, but big drops are unlikely if automakers absorb the loss of subsidy.

Continuing improvements in battery performance and manufacturing could help offset some of the removal of government subsidy over time, gradually bringing EV prices down to parity with gasoline vehicles.

How many times can you claim an EV tax credit?

The $7500 EV tax credit can only be claimed once per vehicle purchase. It does not matter if you are the initial owner or a subsequent owner - the credit can only reduce your tax bill by a maximum of $7500 total over the lifetime of owning that specific electric vehicle.

There is no limit to how many EVs you can purchase over time, and you claim the credit once for each one as long as they all qualify for the program. However, you cannot claim the tax incentive multiple times for the same electric vehicle.

The credit also cannot exceed your tax liability - if your tax obligation is less than $7500 in the year of purchase, you can carry over the unused portion to offset future years’ tax bills for up to 10 years.

Does the $7500 tax credit work on a lease Tesla?

The full $7,500 credit goes to the company that leases the car to you, as these are considered “commercial vehicles” as per IRS rules. So, if you are getting a Tesla, the credit will go to Tesla. T

his enables them to offer lower monthly lease payments as some or all of the $7500 credit gets factored into negotiating the pricing. Either way, the maximum credit amount you and a leasing company can receive combined is $ 7,500 per electric vehicle.

Can a married couple get two EV tax credits?

No, a married couple filing jointly can only claim the $7500 electric vehicle tax credit once per vehicle purchased, not twice. The IRS limits the credit to one per electric vehicle regardless of the number of owners.

However, if a married couple both independently qualifies for and purchases their own separate EV, then each spouse could claim a unique $7500 credit for their individual vehicle.

But a jointly owned EV purchased by a married filing jointly couple is only eligible for a single tax credit, not two. This restriction is in place to prevent double-dipping of the government subsidy.

Does the government give you money to buy a Tesla?

Yes, the federal government provides a significant subsidy in the form of a tax credit for buying an electric vehicle like a Tesla. However, before January 2023, Tesla had hit the limit of 200,000 vehicle sales under the previous law, where a manufacturer cannot get a tax credit for its vehicles if it has 200,000 sales. But that bill is removed in 2023, so if you buy in January 2023 and onwards, you will get up to a $7,500 tax credit subsidy from the government on your Tesla.

Why are EV subsidies bad?

While EV subsidy has arguably stimulated the adoption of the new technologies, there is criticism that they represent an inefficient use of taxpayer money that disproportionately benefits wealthy early EV adopters. Some arguments against EV subsidy include:

  • They primarily reward the purchase of luxury vehicles rather than increasing accessibility. Most EV buyers earn over $100k on average.
  • The upfront costs of EVs are still much higher than gasoline cars, so subsidy usually exceeds what’s needed to change consumer behavior.
  • It distorts free market competition by implicitly favoring certain brands and technologies over others. The subsidy may be prolonging the fledgling EV industry’s need for artificial assistance.
  • The costs accumulate substantially, with hundreds of thousands receiving credits annually, putting billions in subsidies that could fund other priorities.

While EV adoption goals are laudable, some argue the massive ongoing subsidy program’s costs and benefits deserve reevaluation, and alternative approaches could better balance interests. However, other counter subsidies remain important to drive further technological advances and price parity objectives. Reasonable people disagree on this complex issue with arguments on both sides.

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